Author: Mohit Gupta

Record to report / R2R – General Accounting – Trial Balance We read about the criticality of a trial balance, how it forms the basis of all financial analysis. http://faoblog.com/processes-record-report-r2r-general-accounting-trial-balance/ Currently, even in our accounting section, we are talking about the basics of a trial balance. http://faoblog.com/accounting-trial-balance/ The next steps in this sub-process are to keep a track of the manual adjustments done and obtain approvals for passing the entries in the books in the next period. Normally since the financial statements have to be drawn from this adjusted trial balance, the approval of the authorities from the CFO group...

Record to report / R2R – General Accounting – Trial Balance We shared the process of book closures and the criticality behind it. http://faoblog.com/processes-record-report-r2r-general-accounting-book-closures-3/ The next process is Trial Balance Preparation. You may be wondering why this is a process. Normally trial balances are drawn at the end of a fiscal period. Trial Balance is an important document. As the size of organizations grew, the practice of drawing of trial balances moved from annual to quarterly, to monthly, in some cases even fortnightly and weekly. So is the process related to only extracting a trial balance at a defined periodicity...

Record to report / R2R – General Accounting – Book Closures Happy Valentine’s day to all our readers…. In our last post, you saw that book closure is a simple background process, except in situations where the procedure gets held up on account of errors. http://faoblog.com/processes-record-report-r2r-general-accounting-book-closures-2/ One thing I missed in the last post, another major reason for a hanging and an incomplete entry. Most of the ERP systems are online, the servers hosting these systems may be located at some other place as compared to the spot from where the entries are being made. Network based packet drops are...

Record to report / R2R – General Accounting – Book Closures The fundamentals of a book closure and its importance was shared in the last post. http://faoblog.com/processes-record-report-r2r-general-accounting-book-closures/ Book closures translate into financial summaries. Book closures are a seasonal process, you need two to three days after the fiscal month has ended. So, creating a separate team just for book closures is usually not recommended. The general accounting team normally dedicate themselves during the close period. This process is normally executed in a predefined sequence. The cash modules are closed first. Once these are closed, no entries can be made for...

Record to report / R2R – General Accounting – Inter company Transaction Entries We looked at the components of an inter company general accounting process. http://faoblog.com/processes-record-report-r2r-general-accounting-inter-company/ Let us check out the sub-processes in this category a little more in detail. The first sub-process was intercompany reconciliations. We had covered this in the following earlier posts: http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-2/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-3/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-4/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-5/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-6/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-7/ http://faoblog.com/processes-record-report-r2r-reconciliations-intercompany-8/ http://faoblog.com/processes-record-report-r2r-reconciliations-workflow/ The next sub-process is intercompany transaction entries. Normally each unit would pass the entries at their end. And then a reconciliation process would follow. But as a back office unit, you may be working for multiple...

Record to report / R2R – General Accounting – Inter company Criticality of a journal entry process was discussed in our previous R2R post. http://faoblog.com/processes-record-report-r2r-general-accounting-je-2/ Our next segment is Inter Company Accounting. This process of general accounting is also a good back office candidate. A majority of the dealings for the outsource / back office unit in this process are internal to your client or principal. I requires a lot of coordination. This is not really classified as a voice based process, since the coordination with various units of the company are done over email / normal telephone calls. These...

Record to report / R2R – General Accounting – JE We listed the steps in a JE or a Journal Entry process. http://faoblog.com/processes-record-report-r2r-general-accounting-je/ The criticality of this process comes from the fact that quite often, journals are used to bypass the normal accounting entries, or to pass rectification entries. This does not really stem from the modern day accounting / ERP systems. This comes from standard accounting processes. I remember one instance, dates back to 1988, where we detected a fraud done by an accountant using JEs. He showed payments as advances to employees and used JEs to wipe these...

We listed the main processes of General Accounting as an outsourcing group. http://faoblog.com/processes-record-report-r2r-general-accounting/ JE’s / Journal entries – a term very familiar to accounting students. But why for outsourcing companies, and as an outsourcing process? Well, Journal entries form a great candidate for outsourcing. Every month, there will be some standard entries which will have to be passed. Some correction entries will always be mandated. Though some of these entries can be scheduled, like annuity payments / payments etc. to be made each month, or regular debits / credits to each account, but quite often the entries will need...

Record to report / R2R – General Accounting We have been talking about various types of reconciliations and shared a number of workflows with you. The links are given below: http://faoblog.com/processes-record-report-r2r-reconciliations-workflow/ http://faoblog.com/processes-record-report-r2r-reconciliations-workflow-bank/ http://faoblog.com/processes-record-report-r2r-reconciliations-workflow-2/ http://faoblog.com/processes-record-report-r2r-reconciliations-workflow-3/ Did you pick up the Six Sigma case study? http://faoblog.com/sigma-case-study/ Today we will move on to the next big quasi-transactional component of the record to report / R2R processes, i.e. General Accounting. There is a reason why I call this as quasi-transactional. A big chunk of these activities are actually routine, some can actually be standardized / scheduled, but they surely need some monitoring do be...

Record to report / R2R – Reconciliations – Workflow Customer / Vendor We saw how a general ledger to sub-ledger reconciliation is also very similar to other standard reconciliations. http://faoblog.com/processes-record-report-r2r-reconciliations-workflow-2/ We had also mentioned, that in a customer / vendor reconciliation, an approval committee will also be needed. You could trigger a dispute resolution workflow, in place of the simple approval as shown by me in the below workflow. The rest does look familiar…. You can click on the image for a larger view.. —————————————————————————————————– Have you been following our accounting blog? http://faoblog.com/category/accounting-core/ —————————————————————————————————– Subscription and Guest Post: You...

Record to report / R2R – Reconciliations – Workflow – Bank We shared how an inter company reconciliation would look like. http://faoblog.com/processes-record-report-r2r-reconciliations-workflow/ Today I share the workflow for a bank reconciliation. If you notice, the flow depicted is very similar, and the only major changes are the entities and the nature of transactions. You could make this really exhaustive. The process can also vary marginally with different banks, primarily on two fronts, one in the mode of dispatch of bank statements by banks, and the process of resolution. Normally for both inter-company and bank reconciliations, there is no requirement for...

Record to report / R2R – Reconciliations Workflow – Inter Company On the FAO side, we had been talking of reconciliations. Click here for Reconciliation Posts What was missing was the workflows. Let’s see how an inter company reconciliation would look like. It is not necessary that you will have the same workflow, this is an indicative flow. You may need to design the same based on your client’s / principal’s needs. —————————————————————————————————– Have you been following our accounting blog? http://faoblog.com/category/accounting-core/ —————————————————————————————————– Subscription and Guest Post: You may subscribe to the blog from the subscription box on the opening page of...

Record to report / R2R – Reconciliations Vendor We discussed in good detail on customer reconciliations in the last few posts. http://faoblog.com/processes-record-report-r2r-reconciliations-customer-5/ Very similar to customer reconciliations are the vendor reconciliations. Technically, vendor reconciliations are a part of an AP / Accounts payable process, but a large number of companies actually execute this as a part of record to report / R2R. Most of the reasons leading to reconciliations are very similar to customer reconciliations: Difference in rates Promotions not affected in billing Debits on account of interest / penalties charged by your client, but not entered in the customer’s...

Record to report / R2R – Reconciliations Customer Last post was just a sample of a value add. http://faoblog.com/processes-record-report-r2r-reconciliations-customer-4/ Based on the client’s business, you can come up with multiple ways of adding value. Some of these mechanisms could be: Trends of disconnects in penalties – the client’s accounting could be charging amounts not communicated by sales Transportation charges – quite often these are a common occurrence, the customers of your client would be expecting your client to do a free delivery, whereas the sale contract could specify otherwise Foreign exchange differences in inter country transactions could open a set...

Record to report / R2R – Reconciliations Customer We started on value adds in the last post, and left you with a pondering question. http://faoblog.com/processes-record-report-r2r-reconciliations-customer-3/ In the example that I had given in the first post for Customer account reconciliations, one key thing was that we as an outsourcer / back office went beyond our call of duty. We started analyzing why those amounts were written off. We talked to our client / principal to take an approval for reaching out to their customers, especially the retail chains… We did analytics on how much material did those chains really needed...

Record to report / R2R – Reconciliations Customer We started with Customer accounts reconciliations in the previous FAO post. We talked about some key things which lead to the items that appear in a reconciliation, rather “differences” between two statements. http://faoblog.com/processes-record-report-r2r-reconciliations-customer/ http://faoblog.com/processes-record-report-r2r-reconciliations-customer-2/ I had triggered a thought that these lead to the process of resolutions. Normally, I have seen most of the big outsourcers and back office units identify the differences, build documentation and supports for the same and hand these over to accounting groups. This is what an accountant does also. But then, where is the value add? Look...

One of our readers reached out to us with a few queries, we thought these would help a lot of our readers, both the students, and also professionals (for refreshing concepts). This was related to the following post: http://faoblog.com/accounting-accounting-concepts-8 The concept Query: Hi Mohit It’s great to see accounting concepts getting some airtime in this forum – keep up the great work!! I did have a few questions on the concept of accrual accounting and would welcome your feedback. 1. Is the key difference between cash and accrual accounting tied to the “Matching” principle (i.e. accrual accounting allows us...

Record to report / R2R – Reconciliations Customer We started with Customer accounts reconciliations in the previous FAO post. http://faoblog.com/processes-record-report-r2r-reconciliations-customer/ I shared an example where you can add value through a simple process of customer account reconciliations. When you really look at this process, the benefit to the client come in through the upstream and downstream processes associated with the process. Quite often, a client / principal will really push back to ensure that you as a back office or an outsourcer will do only what you are asked to. But the benefits of a back office will come only...

Record to report / R2R – Reconciliations Customer The need to do a reconciliation between the main and subsidiary books was cover in the previous post. http://faoblog.com/processes-record-report-r2r-reconciliations-subsidiary-books/ This reconciliation also gains importance where ERP systems are being upgraded to either a new system or an updated version. Let us look at customer reconciliations now. This process is one perfect candidate for outsourcing / back office work. It covers both processing / back office work and also voice related calling. One interesting customer that I did some outsourcing for found this process very beneficial. This customer had about 4 million direct...

Record to report / R2R – Reconciliations Subsidiary to main books We elaborated on a few items constituting a reconciliation. http://faoblog.com/processes-record-report-r2r-reconciliations-bank-4/ http://faoblog.com/processes-record-report-r2r-reconciliations-bank-5/ http://faoblog.com/processes-record-report-r2r-reconciliations-bank-6/ I guess that should be good enough for bank reconciliations. ERP systems have given another reason to do reconciliations. As a basic modular design, the general ledger sections of an ERP Accounting system are separate from the subsidiary units, like accounts payable, accounts receivable and payroll etc. So there is a necessity to upload these subsidiary books to the general ledger module. ERPs have procedures, which can be scheduled. These updates normally happen by closing the modules...